Decline and Fall of the Euro Union

The Decline and Fall of the Euro Union

MacLeod identifies headwinds faced by the European Union in the wake of Brexit. Without the UK, not only does the EU lose much of its importance on the world stage, but the Commission’s budget is left with an enormous hole. That is the decline. The fall is under way, with capital flight much worse than generally realized. Not only is the ECB running out of options, but without major support from Germany, France and Italy, Brussels faces a financial crisis. In a highly unusual move, Jamie Dimon of J.P. Morgan, in a letter to shareholders, backtracked on his earlier pre-Brexit threat to move jobs from London, declaring that the problem is Europe itself.

Macleod discusses the decline of the EU; the fall of the EU; the euro, TARGET2 and the ECB; tapering; and finally, gold:

“We return to that article in the FT, about the reserve asset managers at central banks who have eliminated their euro positions. Presumably, their analysis echoes the conclusions of this article. But taking the euro out of their reserves leaves them with a problem: what to put in its place.”

“Primarily, the objective of holding non-dollar reserves is diversification from the dollar, and since the euro is a major component of the dollar’s trade weighted index, it is a big hole to fill. Some of them have opted for sterling, which is a vote of confidence for Britain in a post-Brexit world. Others, particularly the Asian central banks, are likely to be adding to their gold holdings, being the ultimate dollar hedge.”

“When EU nationals begin to understand the banking and currency dangers faced by the Eurozone, there is little doubt they will increase their holdings of physical cash and gold. Anything to get out of the banking system.”

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Gold demand of 973.5t was the lowest Q1 since 2008. The main cause was a fall in investment demand for gold bars and gold-backed ETFs, partly due to range-bound gold prices. Jewellery demand was steady at 487.7t, as growth in China and the US compensated for weaker Indian demand.